Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)

Chapter 12 - Capital Gains Tax - Application to Government incentive schemes - Subdivision E of Division 3 (Part 3) of the Bill.

Overview

12.1 This Bill will amend the law to prevent an inappropriate liability which can arise under the Capital Gains Tax (CGT) provisions to amounts paid under certain Commonwealth, State and Territory incentive schemes. A specific exemption from CGT will apply to reimbursements or payments of expenses under such schemes that are prescribed in the Income Tax Regulations on a case by case basis.

Summary of proposed amendments

Purpose of amendments

12.2 To ensure that the liability to CGT does not provide a financial impediment to taxpayers who participate in government incentive schemes [Clause 47].

Date of effect

12.3 The amendments will apply in relation to all disposals, other than assignments, of rights under a scheme which is prescribed in Regulations applying to the time of disposal, even if the Regulations are not made until after that time [Clause 49].

Background to the legislation

12.4 As a result of the definition of asset in section 160A of the Income Tax Assessment Act, a CGT liability can arise in relation to the disposal of rights created under Government incentive schemes.

Explanation of amendments

12.5 To ensure that the liability to CGT does not provide a financial impediment to participants in such incentive schemes, the Act will be amended to provide an exemption from CGT in relation to the reimbursement or payment of certain expenses under government schemes prescribed on a case by case basis. [Clause 48; new subsection 160L(6A)].

12.6 Payments made under a prescribed scheme will lose their CGT-exempt status if the scheme is subsequently omitted from the Regulations. If a scheme is omitted from the Regulations and is no longer eligible for the exemption, CGT would apply in relation to disposals of the rights under the scheme made after its omission, but not to earlier disposals.

12.7 The exemption will not apply in any situation where a taxpayer disposes of rights under an approved scheme by way of an assignment of those rights.

12.8 In the event that a disposal under a scheme is subject to CGT, and the scheme is subsequently prescribed in Regulations applicable to the time of the disposal, then the relevant assessment can be amended to give retrospective effect to the CGT exemption provided by the prescription. Any time limits imposed by section 170 will not prevent the amendment of an assessment to give effect to a scheme becoming a prescribed scheme [Clause 48; new section 160L(6B)].